New Year’s Eve 2019 Forecast (What’s this?)
I’m forecasting that there will be no recession in 2020 and thus NYSE will be higher than it is today. By how much is a question mark, though I see slowing (rather than accelerating) growth rates as we continue the historic boom in stock market prices. Wall Street is only a rough proxy of general economic conditions at best. But a growing economy is the tide that lifts all boats, which will help the stock market. And there is a broad latent support effect in the economy itself which is the Fed’s continued support of historically low interest rates.
This injects a major carrying capacity of growth across the entire economy which counteracts the spot-effect of trade war and other fiscal policy decisions of President Trump’s administration. Typically, the Fed only reverses on low-interest when inflation begins to rise, and it is the rise of interest rates which signal the recession as the latent support effect is removed and valuation has to float down to more realistic levels. This is what sets conditions for busts…but I don’t see that happening by 2020 though it might later.
Contingencies on this are, again, sharp raise in inflation which forces the Fed’s hands. But the lag time from an interest rate raise to feeling it in the general economy is 6-12 months and it’s often a quarter or three after that that we realize we’re really in a recession. So even if the Fed raised rates in June of 2020, it might be June of 2021 before a call of “recession” is made.
Other contingencies that could drop the NYSE lower than current levels are exogenous and have to do with China taking drastic measures in an escalating trade wars (such as collapsing the university system by withdrawing students) or major stoppage of key commodities (oil) for sustained periods of time.
As sharp recession is one of my contingencies for a loss to President Trump in re-election in Q2 this forecast indicates such a recession is not likely.